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The Medicines Company (NASDAQ:MDCO)

Q4 2007 Earnings Call

February 13, 2007 8:30 am ET

Executives

Kelli Watson - Senior Vice President, Global Communications

Glenn Sblendorio - Executive Vice President and Chief Financial Officer

Clive Meanwell - Chairman and Chief Executive Officer

Analysts

Richard Smith - JPMorgan

Steven Harr - Morgan Stanley

Matt Duffy - BDR

Jason Kantor - RBC Capital Markets

Joseph Schwartz - Leerink Swann

Liana Moussatos - Pacific Growth Equities

Lucy Lu - Citi

Maged Shenouda - UBS

Tom Ragle- Federated Investors

Operator

Hello and welcome to The Medicines Company full year and fourth quarter 2007 earnings call. My name is Jeff and I will be the operator for today's conference. (Operator Instructions). I will now like to turn the call over to Ms. Kelli Watson, Senior Vice President, Global Communications. Please go ahead, ma'am.

Kelli Watson

Thank you and welcome, everyone to The Medicines Company fourth quarter and full year 2007 results conference call. I'm Kelli Watson, Senior Vice President of Global Communications.

Before we start, I'd like to give you an update on Michael Mitchell. Michael is doing well and is currently training in the field in a territory in New Jersey. I am sure he misses being with us today.

We will start today with Glenn Sblendorio, our Executive Vice President and Chief Financial Officer to review the 2007 financial results. John Kelley, our President and Chief Operating Officer will then provide an operating review, including goals and drivers for our business in 2008. Glenn will then return to summarize our financial guidance for the year. Clive Meanwell, our Chairman and Chief Executive Officer will moderate the Q&A session at the end of the call.

I'd like to remind you that this conference call will contain forward-looking statements, which involve a number of risks and uncertainties. For this purpose, any statements contained here that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, intends, estimates, forecasts, should, and similar expressions are intended to identify forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include the risks related to the commercial performance of the company's products, risks associated with the clinical trials and regulatory approval processes, risks related to the company's dependence on third parties, and other factors set forth under the caption "Factors That May Affect Future Results" in the company's 10-Q filed with the SEC on November 8, 2007, and which are incorporated herein by reference.

First to Glenn Sblendorio.

Glenn Sblendorio

Thank you Kelli and good morning everyone. I will start by reviewing the financial results for the full year 2007 and will then turn to our 2008 guidance after John's operational update.

As we reported this morning, total revenues for 2007 were $257.5 million. Total revenues increased $43.5 million during 2007 compared to $214 million in 2006. Despite a decline in PCI volumes, which we estimate to be in the range of 6% to 8%, our year-on-year growth was 20%.

US Angiomax sales in 2007 were $255 million compared to $200.7 million in 2006, an increase of $54.3 million or 27%. International revenues totaled $205 million in 2007 after recording reserve of $3 million for existing inventory at Nycomed. This compares to $11.3 million in 2006.

Cost of revenue was 25.8% for the full year 2007 compared to 24.2% for the full year 2006. The increase in cost of revenues is due to a higher effective royalty rate on Angiomax sales.

Total year gross to net adjustments were approximately 7%, in line with our expectations. And inventory at the wholesalers at yearend was within our targeted range of approximately four to six weeks.

R&D spending was $77.3 million during 2007 compared to $63.5 million during 2006. R&D increased $13.8 million or 21.7% in 2007. This reflects our continued shift in R&D investments in our other pipeline products, cangrelor and Cleviprex, which accounted for 69% of the total R&D spend.

For Angiomax, the major R&D spend was for the HORIZONS trial and the milestone is paid for completion. Spending on the ACUITY trial is now complete.

SG&A spend for the full year 2007 increased $53.5 million to $141.8 million in 2007, compared to $88.3 million in 2006. The increase in SG&A rose largely from investment in new opportunities. Specifically, five items account for most of this increase.

First, a one-time charge of $28.1 million in the third quarter to reacquire the rights to Angiox.

Second, non-recurring investment in global analysis of market opportunities and establishing infrastructure for ex-US operations of $5.3 million.

Third, $7.8 million for sales and marketing services, incurred by Nycomed through the end of the year. As previously mentioned effective January 1, Medco assumed all sales and marketing responsibilities from Nycomed.

Fourth, there was also $6 million in US pre-launch preparation for Cleviprex.

And last, a $5 million increase in stock option expense.

Total stock option compensation expense was $15.4 million in 2007, compared to $8.5 million in 2006, an increase of $6.9 million or 81%. Stock compensation expense is included in cost of revenue, R&D, and SG&A at 3%, 21% and 76% respectively in 2007.

Interest income for the year was $10.7 million compared to $7.3 million due to a stronger cash position. Our rate of return on our cash investment was consistent from year to year.

As I move to net income and EPS for 2006 and 2007, it is important to reiterate that there were events in each respective year that significantly impacted our results. In 2006, we recognized a non-cash income tax benefit of $46.6 million and for 2007, there was a one-time charge for the reacquisition of Angiox rights from Nycomed in the amount of $28.1 million.

As a result, the full year for 2007, we reported a net loss of $18.3 million or $0.35 per share as compared to net income of $63.7 million or $1.25 per share for 2006.

If we remove the Nycomed non-recurring termination expense and stock compensation expense, non-GAAP net income for 2007 was $25.2 million or $0.49 a share. This compares to non-GAAP net income in 2006 of $25.6 million or $0.50 per share, which exclude the effect of stock compensation expense and non-cash tax benefit recorded in the fourth quarter of 2006.

I would like to also review one balance sheet change this year and that is the change in accrued expense, which was $73.8 million at December 31, 2007 compared to $36.9 million at December 31, 2006. The increase from prior year predominantly relates to the termination of our distribution arrangement with Nycomed and amounts owed under the transition and distribution agreements. The total is 31.2, which accounts for most of the difference.

I would also ask you to refer to our fourth quarter and full year press release for additional details.

I'd now like to turn the call over to John for the operational update.

John Kelley

Thanks, Glenn and good morning, everyone. I would like to start my comments this morning by highlighting our accomplishments in 2007. We achieved net sales for Angiox of $257.5 million within our revised range of our guidance.

We filed the sNDA for the ACS indication for Angiomax with the FDA in quarter three and we received the recommendation for approval of this indication in Europe by the CHMP. We recently received final approval of this label.

The NDA for Cleviprex was filed and we made significant progress in enrolling patients in the Phase III CHAMPION trial for cangrelor.

In 2008, we will continue to focus our efforts on growing the Angiomax brand and increasing our market share. We need to build our global organization and make significant progress in establishing Angiox in Europe. We anticipate the launch of Cleviprex in 2008 and we will continue our progress towards an NDA filing of Cangrelor.

Now let me go into a bit more detail on our top-line sales results. As you know, our original guidance for 2007 was for top-line sales of $276 million to $286 million. In July, we revised that guidance after we saw a significant decline in PCI patient volume caused by a number of external factors that have been previously discussed. At that time, we forecasted that the full year impact of the decline in patient volumes could be in excess of 6%.

Based on the most recent patient discharge data we monitor, it appears the decline is in the range of 6% to 8%.

According to third party audit, gross sales of Angiomax in the United States are $286 million in 2007, a [23%] increase over 2006. Gross sales in Q4 were $83.7 million, a 36% increase over Q4 2006 and a 23% increase over Q3.

Total boxes sold to hospitals were 58,266 for 2007, a 10% increase over 2006. Q4 boxes sold were 16,268, a 17% increase over Q4 of 2006 and an 18% increase over Q3. The strong sales in Q4 were the result of significant demand in December, when 7,135 boxes were ordered by hospitals. In part, this strong demand was fueled by a forward buying by a small number of hospitals in response to a price increase notification.

On December 16, 2007, we notified the GPOs that we would increase the price of Angiomax by 12% on January 2, 2008. This two-week advance notification is per our contract that we have with the GPOs.

In response, approximately 140 hospitals placed heavy orders than usual. In total, we estimate the forward buying was in the range of 2,300 to 2,600 boxes. I want to stress that this forward buying by hospitals is not reflected in our sales to our distributors. In 2007, our hospital demand reflected by the audit was 58,254 boxes. Sales to our distributors were 55,835 boxes, resulting in our net sales number of $255 million in the United States.

While our net sales did not reach our original guidance for 2007, we did exceed our market share goals for the year. Through Q3 of 2007, the latest quarter data we have, our overall share of the PCI market was 42.5%, up from 34.1% in Q3 of 2006.

Breaking that down by diagnosis, Angiomax share of the stable angina patients was 56.3% in Q3, up from 45.2% the previous year. Unstable angina was 49.3%, up from 36.1%. Non-STEMI share increased the 35.1%, up from 29.2% and STEMI was 18.6%, up from 15.8%.

With new data available from the HORIZONS trial, we anticipate that we will be able to continue to increase shares especially in the higher risk patient population. Until HORIZONS, we did not have data characterizing Angiomax's efficacy in the STEMI patient population.

We believe this important data supporting Angiomax in the most high risk segment of patients will encourage physicians to treat STEMI patients with Angiomax, in addition to driving increase use of Angiomax across all spectrums of patients undergoing PCI.

In our 2008 forecast, we anticipate that we will be able to continue to increase our shares especially in a high-risk patient population. While we do not anticipate that we will see growth in patient volume, we believe that we can grow the product from $310 million to $320 million in US sales in 2008.

At the start of 2007, improving the performance of Angiox in Europe was identified as a key growth driver for the future. We reacquired the rights to Angiox and Nycomed in June and have been in the process of transitioning the operations over to The Medicines Company.

In 2007, we assumed the responsibility for all marketing decisions on the brand. We've put in place the principle legal structures to operate in the key European countries and we have opened an office in Zurich. We have hired key executives to form a global management team of each of our business units, and we are actively recruiting to fill other key European positions.

As of January 1st, all commercial responsibilities have transitioned from Nycomed to The Medicines Company. Already, this year, we have held several advisory meetings with key opinion leaders in Europe, with numerous other meetings scheduled. We have resources on the ground either directly employed by The Medicines Company or contracted in each of the four key countries. As previously reported, Nycomed will continue distribution of Angiox at least until July of 2008.

Based on our early discussions with key opinion leaders in Europe, we know that we have a lot of work in front of us. In essence, we need to launch the drug. We are confident that we have the label and the data to establish Angiox as the drug of choice for PCI in Europe, the same as we have done in the United States. However, 2008 will be an investment year, with a lot of groundwork needed to be accomplished. We anticipate ex-US sales of the brand to be in the range of $10 million to $15 million in 2008, while this is a five-fold increase over 2007, it's just a beginning.

Moving on to our pipeline products, we are extremely excited about the FDA acceptance of the NDA on Cleviprex and we look forward to the launch of the drug in 2008. Throughout 2007, we saw numerous presentations of Cleviprex data major medical meetings, data that reinforce the unique nature of this drug.

Cleviprex has demonstrated that it combines rapid, reliable and predictable blood pressure control with ease of use and a favorable safety profile. We believe that Cleviprex has a differentiated profile that will allow us to become a leading drug in the acute care setting.

Last year, we told you that we would expand our sales force in 2008 in preparation for the launch of Cleviprex. At that time, we estimated that we would go from 123 sales territories, up to as high as approximately 215 territories.

We now believe, we can effectively launch Cleviprex and continue to penetrate the Angiomax opportunity with 178 territories. We've already hired the management team to lead our expanded sales force. They will begin filling new territories as we get closer to the anticipated launch of Cleviprex. Our goal for 2008 is to launch the drug to hospitals and have sales of $5 million to $10 million.

Finally, I would like to update you on cangrelor. We made significant progress towards an NDA filing of this drug this past year. We've now recruited over half of the patients in the CHAMPION PCI trial and over 25% of the patients for CHAMPION PLATFORM.

We had two successful DSOB meetings in 2007, with both resulting in a recommendation for continuation of the trial.

The protocol for the trials were amended last year, focusing enrollment on high-risk troponin positive patients. We believe a focus on this high-risk patient population will provide a greater opportunity for success of the drug.

This change in protocol did result in the slowing of enrollment, but it will likely lead to a higher probability of success. We believe that we are on track for a first half 2009 submission of the NDA for cangrelor. We continue to believe that the unique profile of cangrelor makes it an ideal drug for acute care setting, and we see a market potential for this drug at least as large as we see in for Angiomax.

In summary, we made significant progress in developing our acute care franchise in 2007. Angiomax has become the market leader for patients undergoing PCI. With the availability of the HORIZONS data, we see a significant opportunity to further penetrate the high-risk patient market. This will be a building year for The Medicines Company as a global organization, but we see this as a significant source of growth for the future.

We look forward to FDA approvals of our sNDA for ACS for Angiomax in 2008 as well as the launch of Cleviprex. We also anticipate that we'll make significant progress towards filing of our NDA on cangrelor. Now I would like to turn it back to Glenn.

Glenn Sblendorio

Thank you, John. John just summarized our 2008 sales guidance in his operational update. I would like to provide some additional details. For the full year, we expect top-line revenue growth in the range of 26% to 34% to $325 million to $345 million. Specifically US revenues for Angiomax up $310 million to $320 million, international revenues for Angiomax/Angiox of $10 million to $15 million. US net revenue for Cleviprex of $5 million to $10 million. Cost of revenue is expected to be 25%. Research and development expenses of $75 million to $79 million; the number would be $79 million to $83 million including stock compensation expense. SG&A of $130 million to $135 million; the number would be $146 million to $153 million including stock compensation expense.

Total stock compensation expense is expected to be $20 million to $22 million, of which 80% is included in SG&A guidance and approximately 20% is included in R&D guidance. Investment income of $6 million to $8 million; this reflects expected lower returns on our portfolio during 2008.

We also expect an effective tax rate of between 50% to 55% due to expected losses in our European operations to which we do not expect to take a tax benefit on. However, I would also like to point out that we will not be paying any significant cash taxes for the foreseeable future as we continue to utilize our NOLs.

In summary, GAAP net income is expected to be $12 million to $16 million or earnings per share of $0.22 to $0.30. Non-GAAP net income is expected to be $41 million to $49 million or non-GAAP EPS between $0.77 and $0.92.

Again, non-GAAP excludes anticipated stock compensation expense of $20 million to $22 million and non-cash income tax expense of $9 million to $11 million.

Also please refer to our fact sheet that's posted on our website if you need additional follow-up and now I would like to turn the call over to Clive for the wrap up.

Clive Meanwell

Thank you very much, Glenn. All-in-all, the business showed solid progress in 2007 which was at top gear in terms of market shrinkage. But we are really looking forward to a very promising year in 2008. First, we anticipate 24% to 36% growth in the top-line from a diversified set of revenue drivers, including improving market conditions in the US. They certainly look like they are stabilizing. There is a strong execution by our US team with very good share gains driven by new data, clear European opportunities for Angiox. There is lower awareness there but high interest especially around the high-risk clinical data.

With Cleviprex, well for planning purposes we assume a late year launch in the US, it could be sooner. We are making great progress in building a global business team.

Second, we are excited about our emerging portfolio, which we believe can be leveraged around the world. Our second product, Cleviprex is now clearly in view and we've made good progress in the Phase III trials of cangrelor with helpful recent validation of effectiveness of more potent P2Y12 platelet inhibition from the pidogrel studies albeit it with a continued need to improve bleeding risks.

So with all that in mind, Jeff, I think we're ready to open up the call for some questions.

Question-and-Answer Session

Operator

Thank you very much, sir. [Operator Instructions]. And our first question will come from JPMorgan's Richard Smith. Please go ahead.

Richard Smith - JPMorgan

Yes good morning. Just a couple of questions, one on Cleviprex. As the approval sort of draws closer, can you just give us sense maybe on what you're thinking about pricing potential peak sales in the U.S. and the Europe? And a quick follow up question on in-licensing. I know it's something you've been looking at other products out there, maybe give us an update on is there anything to look forward to in the short term? Thanks.

John Kelley

Joe, would you like to handle the pricing one and I maybe with Glenn's help can talk about the in-licensing?

Glenn Sblendorio

Okay. Well with regards to pricing we haven’t yet settled on a final price. We certainly think that product has differentiated features that we believe will enable us to bring the product to the market at a premium price. So, we clearly look to be able to do that.

You had another question on Cleviprex that --

Richard Smith - JPMorgan

Just getting a sense of how you [look at the details].

Glenn Sblendorio

Yeah I think that what we said in the past, Richard, is that we think that Cleviprex has the opportunity to be a $200 million product in the United States five years after launch.

Richard Smith - JPMorgan

What about Europe?

Glenn Sblendorio

We are still accessing the opportunity for the product in Europe. We certainly see that IV anti-hypertensives are used quite frequently there. It's a little different mix of products in Europe than it is in the United States. So we have not yet established exactly what we think the potential there is, but we do think it is a sizeable opportunity. We also think there was sizeable opportunity for the product in Japan.

Richard Smith - JPMorgan

Okay, thank you.

Clive Meanwell

Richard, on the in-licensing -- this is Clive, and Glenn may want to add something -- we are very active in looking at a range of in-licensing opportunities and focus is clearly on the acute care hospital space, in particular in acute cardiovascular products. We've been gratified to see a lot of very interesting opportunities out there and certainly supported by the global investment banking community.

We've seen ourselves looking at a lot of potential opportunities. I think that it is probably too early to say that one is imminent, but certainly our goal is to leverage the franchise that we are building and remain on the core area but that's Europe. The U.S. really is now open to us. We obviously are excited about the fact that we can leverage these opportunities down in China and Europe as well as the U.S. going forward.

But our overall strategy here is to show sustainable particularly top-line growth, but obviously earnings growth in the medium- to long-term, so we do have a very, very driven and focused approach to make sure that we can sustain the growth of the company beyond even the current portfolio. Richard, the only thing I'd add to that is more of an operational nature, we did it some significant resources to BD during 2007, which includes both medical and clinical support on the team as well as analytical support, and are in the process of also putting some resources on the ground in Europe.

Now John mentioned, we recently opened an office in Zurich. We are seeing lot of good acute care opportunities from Europe as well as here in the U.S.

Richard Smith - JPMorgan

All right, thank you very much.

Operator

And our next question will come from Steven Harr with Morgan Stanley. Please go ahead, sir. Your line is open.

Steven Harr - Morgan Stanley

A couple questions, first of all John is probably, most appropriate for you, do you think that Baxter's ills or issues with its multi-dose vial Heparin provides an opportunity either in terms of short-term taking some volume or the longer run highlighting the poor sign basis of that product in a way kind of get more of latch around doctors is the first question, and I will come back for another one?

John Kelley

Okay, thanks, Steve well certainly, our strategy all along has been in the PCI studying, it emphasis that physician should replace Heparin and improve outcomes with Angiomax. And I do think as well it would not be of our nature to run out and try to create any kind of scare tactic about Heparin, while pointing out where we think the very strong benefits of Angiomax over Heparin and PCI are very important.

As I understand the problem predominately, Baxter has been in the cardiac surgery area, where we obviously have data and it's also been in the renodialysis area where we really don't have any data. So, I think, that we have to be balanced in terms of our approach, I think that we are educating ourselves properly in terms of what they should say to their physician and make sure that again restructuring the benefits of Angiomax over Heparin.

Clive would you like to add anything to that?

Clive Meanwell

Not really, I think, that Steve, you know Heparin well. It's a challenging drug to work with, this is a challenging drug for manufacture but it is still the mainstay of medicine and I think we have to support the medical community and balance few of these.

Steven Harr - Morgan Stanley

My other question, I am bit a confused about kind of where inventory stands and where -- what was actually in the fourth quarter number so that there was a lot of hospital forward purchasing?

Clive Meanwell

Correct.

Steven Harr - Morgan Stanley

And you said inventories at the distributor level ended in normal 4 to 6 range. Is there any inventory that you expect to come out the channel in the first or second quarter either with the hospital level or to distributor level or is even in the hospital forward but actually going to be booking 1Q? I was just kind of confused of that conversation.

Clive Meanwell

I think Steve, let me start with this, we think that the hospital boarding took advantage of the price window and boarding. And so in a Walters care report or maybe IMS report although they have not been very aligned today. We might expect that the numbers in the first quarter would be modestly reduced because this already -- there is pre buying by hospitals. They may not have to buy so much from wholesalers in the first quarter, even the first two quarters in some hospitals.

On the other hand, because we did not chase the volume increase in hospitals by providing more drug to wholesalers, we kept wholesalers at bay if you will, that means that in the fourth quarter and the first quarter probably wholesaler sales were down a little bit, those very much, went down a little bit, they trained their inventory to sent it to hospitals, but we didn't replace the inventories. So, we are pretty comfortable with where we are, probably in the lower-end of our usual range, rather than the upper-end of our usual range. And it shouldn't really have an impact on our net reported sales on a quarterly basis. But again, I wanted to see whether John and Glenn have anything to add to that.

Glenn Sblendorio

See we have read and it was in the script and just to provide, we have been trying to more transparent about this demand sales. Sales in the wholesale -- I just want to go through those numbers again. For the total it was 58,254, sales ex-factory or sales to the wholesalers was 55,835. So just to reiterate car sale to the wholesalers was 55,835. So, just to reiterate what Clive said, clearly we didn't try to catch up on the buy on the hospital to take advantage of the price. So, an inventory at the wholesalers is net-net down just by the map. And I think I did make the comment that, within our target range, it would make sense that you would think that we are at the lower end of that range with those kinds of numbers.

Steven Harr - Morgan Stanley

Thank you.

Operator

And we'll now hear from Matt Duffy from BDR Research. Please go ahead.

Matt Duffy - BDR

Good morning and thanks for taking my question and a nice quarter. Clive I wonder if, you and John might comment on the PCI market? It looks like from some of the publications, some of the things you see in the cardiology press that the interventional are just starting to fight back, against some of the data that came out last year. Are you guys being conservative, do you think with flat PCI volumes or is that way what we should sort of expect going forward?

Clive Meanwell

Thanks Matt, good question, I think that, based on the data that we monitor which is patient discharge data, which we only have right now through the third quarter. We really don't have any evidence that would suggest that there has been rebound in patient volume. I agree with you. The interventional cardiologist and their societies, I think, are starting to make the case for the science behind intervention.

I think they are starting to make the case where some of the challenges, if you look at the Courage data and some of the short fall of that analysis. And so, we can hope that we would see some rebound in the marketplace. But we don't need data right now, or even really a lot of solid anecdotal reports from the folks that they are seeing a strong, strong rebound in patients. So, are we being conservative? I'd say we're being prudent in the forecast that we put forward for this year with flat patient volumes.

Matt Duffy - BDR

Okay, thanks.

Glenn Sblendorio

Obviously Matt, if there is an upturn in that market, we would hope to participate in that but I think it's hard to forecast that.

Matt Duffy - BDR

Sure. And I wondered John and Clive, if you might just walk us through some of the steps that you guys have to take in order to actually realize increased sales in Europe; is there pricing on the hospital level that you have to get through, are there local and country guidelines that you have to work through?

What are some of the steps and hoops commercially you have to get through before you can start to move the needle over there?

John Kelley

Well, Matt, I guess the advantage that we have in terms of buying back the rights from Nycomed is that they had been successful in getting the product onto the market and commercialized in 21 countries or so in Europe. So it is available for people to use and reimbursement in all of those countries.

There are a few Eastern European countries where they are still awaiting some decisions on registration and/or reimbursement like in Poland, but I think even though, those are making progress. Now, I think what we have to do is actually sell the drug. I think what we have found as Clive said in his comments that there is pretty low awareness of the data and pretty low awareness of the benefits of the drug.

But I think a fair amount of excitement about the possibility that the drug might bring to the marketplace based on the HORIZONS' database on the ACUITY data, and based on a new label that we now have for the product with ACS in Europe.

So sort of the building blocks are there, and we have to do what I think the Medicines company is very good at doing, which is sell the benefits of this drugs and build relationships with key opinion leaders and that's going to take a little bit of time. Now, about four weeks ago, all of us went to Germany for few days and spent a few days in an old German counsel meeting with six of the leading health economists in Europe.

It was a wonderful two days and I think many of the discussions we've had with US hospitals about how we save them money, were reiterated in the European setting with the European drivers and issues. I think there was a consensus around the table, that we have a very solid health-economic argument and if we can put that in place and keep that hurdle out of way then we can focus on the key opinion leaders in changing practice pattern.

So I think it is a very good old fashion marketing effort with high quality data and a lot of clinical contact and we're very much looking forward now. It doesn't happen over night and I think that's why John you know putting a cautionary turn on what he is saying and we've lot of work to do before we can realize the kind of growth we think the potential suggests.

Matt Duffy - BDR

Great and one last question -- you guys haven't had a chance to say no comment yet this morning -- so I thought to ask you, is there any update on the pattern situation?

John Kelley

Thank you, no comment, no. Well, we briefly as I think most people know but let me reiterate there is a bill before Senate S1145 and a bill before the House which is 1778 containing language that if it was inactive would give the pattern trademark office discretion to consider applications filed late unintentionally which would of course most likely come around our situation with Angiomax.

S1145 was of course through the Senate Judiciary Committee in July and is now under actual consideration again at the Senate. A similar bill was passed through the House already, so the steps required here would be simply for Senate approval and then some kind of meeting organized between Senate and Congress and then for the President to sign the law though it sounds like simple steps but like all things they are full of complexity, especially the top line business. So, therefore it's not reasonable for us to offer any assurance that either of these bills would be enacted or if they are enacted then we would necessarily benefit from them but I think we are encouraged by the activities down there and we're obviously trying to support our colleagues in Washington and everywhere we can with the information they need.

Matt Duffy - BDR

Hey, very good. Thanks guys.

Operator

And our next question will come from RBC Capital Market's, Jason Kantor. Please go ahead.

Jason Kantor - RBC Capital Markets

I am sorry, can you hear me?

Clive Meanwell

Yes. Hi, Jason.

Jason Kantor - RBC Capital Markets

Hi, well all of my questions have been asked, but I just -- I want to go back to this ex-US launch because the guidance you've given, 10 to 15, I look back if that's the range of what you did in your first year in the US with a much lower price, with almost no data and with no history of the drug at all in the marketplace or even data that has been presented in the past five years. So, you know, this is not an unsophisticated market in Europe, how do you not get at least twice the sales that you are projecting?

Clive Meanwell

Well Jason, I think we need to ask you, would you be willing to join our marketing team because I like that kind of enthusiasm. And I think that you are right, there is a great potential there. It is a sophisticated market, I don't think we disagree with anything you say. The only part that we're perhaps being a little bit thoughtful about and perhaps as John put it, prudent, is that this is a marketplace driven by relationships of trust with prescribers who themselves are very sophisticated high-end doctors, and their pharmacy teams.

And I think we just need to make sure we give ourselves the time to build those relationships so that when we do start seeing growth in the market, it never goes backwards. That in other words, it's based upon real understanding of the data, real understanding of what we want to do with the product. And I do think building those relationships takes time, especially for young company like us that is just establishing ourselves in Europe. So, forgive us for the shyness but I think we've got a lot of work to do first.

Jason Kantor - RBC Capital Markets

Okay. And then -- you are kind enough to provide us with a lot of good market share data. What is your guidance assume in terms of those days market segment penetrations? And I guess, did you say that you thought that the market would be, the overall market assumption is to be flat?

John Kelley

Yes, Jason, this is John. In our forecast, we are assuming that we are not going to see a growth in patient volume in 2008. And I think that we are forecasting growth in all of the segments, modest growth in the lower risk patient population because we are already highly penetrated there with market shares that are approaching the 60% range. So, we don't see huge gains there but we do think we'll continue to see some gains there. We think the largest opportunity is in growth in the non-STEMI and STEMI patients where our market shares are lower and we think we have with the availability of new data and higher risk patients, a greater opportunity to grow there.

Jason Kantor - RBC Capital Markets

Thanks.

John Kelley

Thank you, John.

Clive Meanwell

Thanks.

Operator

And moving on we'll now here from Joseph Schwartz with Leerink Swann. Please go ahead.

Joseph Schwartz - Leerink Swann

Hi, thanks for taking the questions John and to congratulations on good performance in difficult market. I was wondering what's, if I can just ask, first of all what segments of the European market seem to present the best entrée for Angiomax given your existing relationships and those that are budding, as well as the competitive landscape?

Clive Meanwell

I'll start and I am sure John will add in. This is Clive. Clearly, in Europe, there is quite a difference in the breadth of premium priced products they used in the cath lab. Generally speaking, if we take Germany as a classic example, the use of drugs on top of Heparin to overcome Heparin's limitations such as GP IIb/IIIa inhibitors is largely restricted to the ACS population and particularly the STEMI population.

In Germany, by way of example, we believe there is around 20% to 25% utilization of IIb/IIIa inhibitant to augment Heparin. We take that's obviously is giving you a signal that European practitioners believe that you bring out the big guns for those kinds of patients. So, I think we have to start without assumption that we are not going to change that overnight and that's why the beauty of introducing the ACUITY data with this wonderful new label we have from the CHMP is so timely, and the introduction of the HORIZONS data for a STEMI patient and remember that the 78% of the patients in the HORIZONS trial were actually treated in European centers.

So the data for HORIZONS and the data for ACUITY are highly augmented to the European practitioner. Now that's a place to start, John you want do you want to add anything to the commercial dimension on that?

John Kelley

No, I think that Clive, the Germany is obviously the largest market of the key European countries, but it is also the market where the product has the lowest penetration. The product over the last year too got up to a pretty good start in the UK that had slowed down, so it needs to be integrated there. Seeing slow start in France, Italy this past year has actually shown a little bit of acceleration in growth but we are starting from a fairly low base in each of those countries but Germany is clearly the largest market and where we are spending a fair amount of our efforts.

Clive Meanwell

Tell me one of the features we find in US that won't stop to get the drug in their hands and use it. They generally find it a gratifying prescribing experience and patients do well and we are hoping that we can expand the breadth of experience in Europe through clinical studies and registries, so that doctors can actually experience the better outcomes for themselves.

Joseph Schwartz - Leerink Swann

Thanks.

Operator

And we will now hear from Pacific Growth Equities', Liana Moussatos for our next question, please go ahead.

Liana Moussatos - Pacific Growth Equities

Thank you. John could you repeat what the previous market penetrations were for each patient segment and overall in US and what time period was that? I think you said, like with stable angina went from 45.2% to 56.3% and is that the right percent and what time period with that?

John Kelley

Okay sure, Liana. What I gave you for each set of number, it was third quarter of 2006 data and then third quarter of 2007 which is the latest quarter of data that we have. So, I'll go through those once again. Overall, market share was in 2007 was 42.5%, that was up from 34.1%. In stable angina, currently in 2007, it grew to 56.3%, its up from 45.2%. For unstable angina, it's at 49.3%, up from 36.1%. Non-STEMI was 35.1%, up from 29.2%. And STEMI is 18.6%, up from 15.8%.

Liana Moussatos - Pacific Growth Equities

Okay. And can you repeat the boxes sold in full year and in Q4, 2007?

John Kelley

Sure, total number of boxes sold, so this would from the audit, 58,266 for the year. In Q4, it was 16,268.

Liana Moussatos - Pacific Growth Equities

Thank you very much.

John Kelley

Okay.

Operator

And we will now hear from Lucy Lu with Citi for our next question.

Lucy Lu - Citi

Thank you. I know Nycomed made Angiox available in Europe. I'm just wondering at the hospital level, do they have a similar PNT process for the drug to become available and reimbursed over there?

Clive Meanwell

Clive here, it varies from country-to-country, but if we take Germany and France and Italy, I think it's -- in Germany it's pretty much directly discussion with the hospital, hospital to pharmacy, pretty much like in the US.

In France of course you have an overlay because you have the transparency commission which has a sort of an oversight of how pharmacies pay for drugs. So, there is a two step process in France while you need to get some four months of transparency commission recommendation and then the individual pharmacies can look at from their own practice perspective.

And then in Italy, there is a (inaudible), which had two committees which mean inline which attend to provide some kind of national guidance for pharmacies which then also translate into some local discussions with the hospital in question.

So if there is, but we think we have data in the health economic information to help them through it. Again this is other reason why we're being a little bit cautious, we want to make sure that we're on all the pharmacies and formularies we need to be and I think at the present time we'd say that was pretty low at the moment, John.

John Kelley

Yes, it has been. I think that we have done a pretty good job of profiling all the catalogs in all of those countries and penetration and availability in the hospital is relatively low in a country-by-country basis.

Clive Meanwell

So that's kind of some French warfare we need to get into and move ourselves forward, walk one by one by one.

Lucy Lu - Citi

Okay. And then in terms of TCI patient mix, did they have a similar ratio of stable versus high risk as in the US? And also if you are looking ahead, do you expect Angiox to gain market share and in which segment first?

Clive Meanwell

Very good question. The data available from Europe is less transparent as at the moment on exact mix of patients. I think from an epidemiological point of view, there is no evidence but there is a difference but from the practice point of view, there probably is a difference. I think European's tend to be a bit more stoic and stable angina patients get fewer stents than they do here in the US, is more of a wait and see approach.

So, I think that's an important difference in the market but I do think that heart-attack is a heart-attack whether in Beijing, New Delhi, Munich or Montana and definitely we're seeing aggressive international management of a ACUITY AMI in Europe and also pretty aggressive, increasingly aggressive management of ICS patients particularly, the high risk patients who are troponin positive, who are going to what the European guideline say is urgent or early intervention which is exactly the area that Angiomax is label is noted for. So, in the high-end I think it's very similar to the US but I think there are other aspects to the market that are different.

Lucy Lu - Citi

Okay. One more question if I may, just in terms of the guidance on Angiox, international net revenue of $10 million to $15 million, what kind of market share in major markets, we're talking about Germany, Italy, what kind of market share does that they represent? Thanks.

Clive Meanwell

It's a pretty low market share, I mean, right now we're starting from the base in most of those countries though its less than 2% market share. So, we see some increase with that but honestly as we said earlier it is conservative.

John Kelley

Certainly less than 5% and just about everywhere with a singular exception some small markets where for some reasons things have gone better such as Sweden, where we have more than 5% market share, but typically we are in that very low single-digit to start with.

Lucy Lu - Citi

Fine. Thank you.

Operator

And now we will hear from UBS's Maged Shenouda for our next question. Please go ahead.

Maged Shenouda - UBS

Hi, thanks. So, you mentioned that your overall market share in the PCI market in the US is 42.5% -- a couple of questions around that. One, where do you think you can go in terms of your maximum or peak market share overall in the market, in the US market?

John Kelley

It's difficult to say, but clearly if we look at segment-by-segment, our current peak in, our current market share in the low-risk patients is approaching 60%, and obviously our market share in other segments is considerably lower than that. In STEMI it is low as 18%.

We think we should have the ambition to move all the segments up towards the direction of 60%, and ultimately one would hope we could achieve that, that's far out, but we need to trudge our way up that slope, and obviously most of the growth is going to come into high-risk patient segments, we think.

Maged Shenouda - UBS

Then just historically, you've positioned Angiomax as an alternative to the IIb/IIIa, where you've also gotten great deal of usage an alternative to Heparin standalone. Is there any way to think about that 42.5% in terms of just as an alternative to Heparin or an alternative to IIb/IIIa plus Heparin? You just cut that somehow.

Clive Meanwell

Well, I think the market has interpreted our product positioning sometimes as being counted IIb/IIIa, but the reality is we've always tried to position the product as better alternative than Heparin as a foundation product.

We've been even on trials to see whether adding a IIb/IIIa would add much. Of course the ACUITY trial shows that it didn't really add much. So, I think it now has become more of what you say, that people pursue it as a replacement for Heparin and IIb/IIIa inhibitor with the ACUITY and perhaps HORIZONS data.

I think that rather cements that idea. The use of monotherapy Heparin in the US is somewhat old fashioned now, I think, it would be fair to say there are a handful of census that still do cling on to that idea but not many. And so, I don't think we're taking many censuses now that there are major censuses, leading censuses that are just using happen a lot. Now in Europe that maybe different though where I think there is, as I said a higher level instances and perhaps certainly perhaps less money to spend and Heparin monotherapy is more a feature of the European therapy.

Again we don't know the exact numbers yet but I'd say here in the States it's probably less than 20% of accounts use Heparin alone where as in Europe it might be as much as 40% or 50% of census that's almost a guess, but so it feels like to us.

Maged Shenouda - UBS

Okay, thanks. And then just maybe as a review of the pidogrel trading data and then how you would view that data as being predictive of cangrelor’s Phase III trials?

John Kelley

Yeah, we found that result very, very exciting for us actually and very validating honestly when you're running large Phase III trials, you look around to see as much as you can what you can find to validate your hypothesis. The finding in the pidogrel trial showed more potent (inaudible) inhibition was providing something like18% to 25% effect size in reducing the ischemic complications in hospital the first three days of the study.

And in diabetics and juvenile positive patients the signal was bigger, so that's encouraging for us that more intensive inhibition provides better ischemic outcomes obviously that's one of the key aspects of our hypothesis to Cangrelor.

In addition though I think we were also intrigued to see even in the short-term more bleeding was a feature of placebo and we think that maybe a lot to do with the duration of therapy and perhaps to do with the reversibility and we therefore think that we may be able to provide a good solution. As John mentioned, DSMB has met twice and obviously they are monitoring the bleeding rates in the trial and we are very encouraged that they have given us the green lights on both occasions to keep moving forward and bear in mind that some patients in the CHAMPION trails are receiving a combination of Angiomax, ReoPro and cangrelor and still we are seeing very acceptable bleeding rates. So, I think, we are encouraged and the trial certainly added to that sense of enthusiasm.

Maged Shenouda - UBS

Great. Thank you.

Operator

And ladies and gentlemen at this time we do have time for one remaining question and that will come from [Tom Ragle] from Federated Investors. Please go ahead.

Tom Ragle- Federated Investors

Yes. Good morning. I was wondering are you comfortable now with the enrollment rates of the cangrelor studies, because you had I think 4,500 in the CHAMPION PCI and October you have now more than 50%? So you are making progress. But I was wondering is it going according to plan at this point and are you still expecting a formal analysis after 6%?

John Kelly

Tom, this is John. I think as I said in my comments. We think, we are making good progress. We did change the protocol in this past year, as we have discussed previously. That change in protocol to focus for trial on higher risk patients, we think was the appropriate thing to do, particularly learning as Clive said from the placebo trial that we believe that give us a higher probability of success.

It did for the enrollment but we are looking to do successful trials and so that's the most important. But, yes, I think we are comfortable with the progress that we are making and that we will throughout the year continue to focus on being on track and getting the NDA in the first half of 2009.

Tom Ragle- Federated Investors

I bet that’s formal analysis.

Clive Meanwell

Yes, sorry Tom, I actually jumped in there. We've just had a whole series of pretty intensive discussions with the FDA on the statistical plans and projects and we've agreed on those things I think the, there are more than one interim looks at this data through 2008. Best way to put I think is that there will be looks probably around mid year and another look towards the end of the year and we will looking at the data at 50% and 70% fully involved. I am sorry 55% and 70%.

Tom Ragle- Federated Investors

55% and 70%.

Clive Meanwell

No, sorry got that wrong, John?

John Kelley

50% and 75%.

Clive Meanwell

Thank you, sorry, Tom.

Tom Ragle- Federated Investors

Yeah, okay. And so 75% is at the end of the year that means that you'll complete enrollment then in the beginning of '09.

Clive Meanwell

Well, remember that there's always a lag between getting the patients and analyzing them. So, it is little uncertain, but we should have most of it done.

Tom Ragle- Federated Investors

Very good, thanks a lot.

Clive Meanwell

Thanks Tom. We are going to close the call now. There may be some additional questions, I don't know, but if we can we'll try to address those during the morning, if we possibly can, but we want to thank everybody for joining us this morning and we'll get back at it.

John Kelley

Thank you.

Kelli Watson

Thank you.

Operator

Thank you everyone for your participation. That does conclude today's conference. Everyone have a great day.

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